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So Much For the Consensus View

2018-06-17T21:24:18+00:00October 4th, 2011|Categories: Behavioral Finance|Tags: |12 Comments

The Canadian stock market officially crossed into bear market territory this week, falling to more than 20% below its April high. We’ve already endured five consecutive months of negative returns and October is so far showing no sign of improvement. It’s times like these that test the mettle of an investor. Do you have the discipline to stick to your long-term plan?

Whenever the markets tank, the very idea of a long-term plan gets called into question. The financial media are filled with stories about “repositioning your portfolio” and “how to invest in times like these.” The implication is that smart investors should react to what has already happened, and then try to predict what’s coming next. Investors who preach “stay the course” are ridiculed as naive fools.

The problem with the whole idea of trying to reposition your portfolio is that it you never know whom to listen to. Nothing illustrates this better than a report today from a UK site called Citywire Money. (Hat tip to De Thomas Financial for sending this along.) Last week, it says, Morgan Stanley polled 200 of its institutional investors and asked them, “What best describes your attitude to global stocks right now?” Here are the results:

  •  20% agreed with the statement: “I am buying now because equities are very cheap and the macro issues are well known.”
  • 30% said: “I expect policymakers to announce credible solutions before year-end and I am waiting for an entry point.”
  • 25% said: “I continue to sell equities as the macro outlook will deteriorate further and policymakers have little or no options left.”
  • 25% said: “I am confused and am doing nothing.”

What conclusion can investors draw from this poll? No matter what course of action you choose, 70% to 80% of institutional money managers will think you’re dead wrong.


  1. Michel October 5, 2011 at 6:42 am

    Good article! One can also extrapolate that only 25% are selling.
    Staying the course is the best action, over the long term.

  2. Raman October 5, 2011 at 8:22 am

    I’ve always been partial to the way Larry Swedroe described it — whenever you sell something, there is a buyer on the other side who thinks what you are selling is a good deal. Why does he think it’s the time to buy, whereas you think it’s the time to sell?

    That Swedroe character is prett-ay, prett-ay, prett-ay, pretty good (as another famous Larry would say).

  3. Echo October 5, 2011 at 9:10 am

    I’m a bit offended that the people doing nothing are labeled as ‘confused’. They might be the smartest in the bunch.

  4. Canadian Couch Potato October 5, 2011 at 9:14 am

    @Echo: I fully admit to being confused. :) I’m more bothered by the implication that building a prudent portfolio and following a long-term strategy is “doing nothing.” Apparently it is much wiser to react to things that have already occurred, or to pretend that you can foretell the future.

  5. Echo October 5, 2011 at 9:18 am

    @CCP: Yeah, who follows a long term strategy anymore? ;)

    I’ve lost count of how many dips I shoud have bought in at this year.

  6. Canadian Capitalist October 5, 2011 at 9:35 am

    I agree with Raman. This survey shows that the 20% who are buying are doing so from the 25% who are selling. The survey may be missing one other category: those who are buying & selling global stocks hoping to make trading profits.

  7. My Own Advisor October 5, 2011 at 11:45 am

    ■25% said: “I continue to sell equities as the macro outlook will deteriorate further and policymakers have little or no options left.”

    That surprised me a bit. I would have thought this % would have been higher.

  8. Jon Evan October 6, 2011 at 12:56 am

    Institutional investors like individual investors are not all alike and I think this explains those varied positions. They have to be pragmatic and it depends whether they are in a position of accumulation or distribution regarding their capital. Large pension funds who are paying out large sums to retirees might need to move to preserve the fund and sell off falling equities but stable life insurance companies might be moving to accumulate equites in this buyers market. This mirrors individual investors who likewise depending on their age have different attitudes to the present bear equity market regarding preservation of capital. Those who are young can afford to wait it out but those old like myself are getting nervous! But in the article there is greater consensus to which asset class will perform best over the next 12 months: equities, with a strong preference for emerging markets and the US over Europe and Japan!

  9. Canadian Couch Potato October 6, 2011 at 7:49 am

    @Jon Evan: Institutional investors may have different mandates, but that’s not what is reflected in their answers to the poll. They are not saying, “I am buying/selling in order to meet a specific future obligation.” They’re forecasting where they think the markets are headed.

    This is the whole point. You’re right that young investors have more time to ride out volatility than older investors do, of course. But the solution is to adjust your asset allocation appropriately based on this time horizon, not based on whether you think emerging markets will outperform Europe in the next 12 months.

  10. Superior John October 6, 2011 at 12:39 pm

    To see such a wide spread response among 200 institutional investors tells me how EXACT a science this. Anyone feel like flipping a coin? So the games go on.

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